Rupert Murcdoch's News Corp has withdrawn its bid to takeover BSkyB.
Deputy Chairman Chase Carey said it had become clear that it was too difficult to progress with the bid 'in this climate'.
A Downing Street spokesman welcomed the announcement and added that the company should now focus on 'getting its own house in order'.
News Corp, which also owns the Sun and the Times newspapers, as well as its 39% shareholding in BSkyB, said it will continue to be a long-term shareholder in the company.
Former British deputy prime minister Lord Prescott, who believes his phone was hacked by the News of the World, sent a message on Twitter saying: 'BSkyB bid over. PCC to be abolished. Senior News International staff arrested. Inquiry into police and press on its way. Yep. I'm happy.'
Labour leader Ed Miliband said it was a victory for everyone who has been appalled by the revelations of the news hacking scandal and the failure of News International to take responsibility.
The form of the inquiry into the phone hacking scandal at Murdoch's News International was announced this afternoon.
The independent inquiry will have the power to summon newspaper proprietors, journalists, police and politicians to give evidence under oath and in public, Prime Minister David Cameron said.
Mr Cameron named Lord Justice Leveson as the chair of the inquiry, which will look into the ethics and culture of the British media.
It will also look at the specific claims about phone hacking at the News of the World, the shortcomings of the initial police inquiry, and allegations of illicit payments to police by the press.
The Prime Minister set out the remit of the single inquiry, which replaces his previous proposal for two separate investigations - shortly after telling the House of Commons that those responsible for phone hacking should be prosecuted.
In fiery exchanges at Prime Minister's Questions, Mr Cameron accepted that former head of communications Andy Coulson should be prosecuted if it is proved that he lied when he claimed to know nothing about phone hacking at the News of the World while he was editor.
The House of Commons Culture Select Committee has asked Mr Murdoch, his son James and embattled News International chief executive Rebekah Brooks to give evidence to their separate inquiry.
However, while the company has said it will ‘co-operate’ with the MPs, it has stopped short of confirming that any of the trio will attend.
The lawyer representing Milly Dowler's family said today they are 'delighted' that there will be a full, judge-led inquiry into alleged phone hacking.
Mark Lewis spoke on behalf of her parents Bob and Sally and sister Gemma in Downing Street after a meeting with Mr Cameron.
It was also announced today that News International's long-serving legal manager Tom Crone has left the company.
Mr Crone was responsible for advising the News of the World and The Sun on editorial matters before and after publication.
The Sun, Sunday Times respond to Brown
The Sun and The Sunday Times have denied some claims made by former British prime minister Gordon Brown relating to the hacking scandal. Mr Brown accused both Murdoch newspapers of accessing private information about himself and his family.
Mr Brown said he could not think of any legitimate means by which The Sun could have got hold of details of his four-month-old son Fraser's cystic fibrosis in 2006 - when it was edited by Mrs Brooks.
‘I don't know how all this happened, but I do know one thing: that in two of those instances there is absolute proof that News International was involved in hiring people to get this information,’ he told the BBC.
The Sun used its front page today to deny accessing Fraser's medical records, insisting it learned about his condition from a member of the public.
Mr Brown's office responded that the matter was ‘now in the hands of police’.
The Sunday Times said it had not broken any laws or used criminals when investigating the purchase of a flat by Mr Brown.
The parents of murdered schoolgirl Milly Dowler, whose phone was allegedly hacked after she went missing, and other campaigners for a full inquiry into the scandal will meet Mr Cameron in Downing Street today.
Elsewhere, an influential US Senator has called for an investigation into whether alleged hacking by Rupert Murdoch's media empire had extended to US citizens and warned of ‘severe’ consequences if that proved the case.
Chairman of the Senate Committee on Commerce, Science and Transportation Jay Rockefeller said he wanted the appropriate agencies to investigate to ensure that Americans have not had their privacy violated.
